EMERGING ISSUES & PROBLEMS IN CHANGED SCENARIO AND HISTORY OF LIFE INSURANCE AGENTS MOVEMENT IN INDIA
At the outset I would like to recount a brief history of the formation and growth of the Life Insurance Agents Federation of India is known as LIAFI over the decades and how the issues which it had taken shape from time to time were tackled by the nascent organization and later on as it gathered strength. The protection of the long-term and immediate interest of the policyholders as well as the agents community across the country slowly and steadily become its corner-stone.
The knowledge of history of insurance is, important to an insurance agent as the fundamental knowledge of insurance contract and the art of salesmenship. A person of medical profession knows that as long as human being will suffer from diseases and ailments, he shall have a defined and specific place in the society. So also a Lawyer, a Teacher, an Accountant, or an Engineer knows the worth and meaning of his profession and his place in the society he lives in and serves. But can we, the insurance agents, and particularly the Life Insurance Agents, claim a place in our society, not merely as for his livelihood through the chosen profession, but as a permanent need of our society, having its root and origin far away down the centuries? If the insurance agents can know their own history, their role and place in the society, the important part that they had been playing in the past and are expected to play in future for the welfare of our society, then they would certainly develop a sense of belonging which would give them the courage and faith that is so very essential for the growth and development of any profession even today.
Role of Agents Association in India.
There is no record of any worthwhile Agents Association in India, prior to passing of Insurance Act, 1938. During the debate on the Bill, the Law Member made a passing reference to a group of persons who represented the view points of the Agents. But, by and large, it was only the members of Central legislative Assembly who spoke either for or against the interest of the agents.
When the provision of Licensing the Agents was debated, various objections were raised against it. The Congress Members who were in favour of Licensing the Agents also had also some reservations of their own. This was because many Congress leaders and workers themselves were selling life insurance as a means of livelihood, but had often ‘bad’ police record of British Government. So, the Congress members did not want to put any stringent condition which may deprive the hard working ordinary Congress workers, in obtaining Insurance Agency License. Not even the educational qualification certificate, which might have revealed the identity, were insisted upon, as that may put the Licensee in difficult position, under British Rules.
So, Insurance Act 1938, although incorporated many good provisions to protect the interest of the policyholders and the Agents, could not become a comprehensive one, mainly due to the objections raised by the leaders of the insurance industry, particularly by the Actuaries.
The Actuary managers, it is on record wanted to put the ceiling rate of Agency Commission to 25% in First year and 2 ½ % as renewals. So, immediately after passing of Insurance Act, 1938, the Actuarial Society of India was formed on 24th August 1940 and their first Memorandum submitted to the Government was not surprisingly, on reduction of Agency Commission.
The industry leaders and the Actuaries made their position felt to the Government, and a Bill was introduced in November 1944 and referred to a Select Committee, to consider Amendment of Section 40 of Insurance Act, 1938, proposing to reduce the Agency Commission rates from 40% to 25% on first year and the Renewal from 5% to 2.5%
There was a time when the Agents of Calcutta, under the leadership of Late S. S. Ali, held a meeting on 24th January 1945, and formed the Insurance Underwriter Association of India. Thereafter, on 31st January, a public meeting was held at the Hall of Bengal National Chamber of Commerce and various Resolutions were passed condemning the Amendment Act. On 2nd February, a 10 members deputation, led by S. S. Ali met the members of Central Legislative Assembly on 22nd March 1945. A Comprehensive memorandum was submitted to all the members of Central Legislative Assembly on 30th March 1945.
Although great effort was made to protect the interest of the Agents – as was obtained under the Insurance Act, 1938, - the Industry leaders and the Actuaries could prevail upon the then Government and reduce the ceiling rate of First year Agency Commission from 40% to 35%. But it was possible to increase the 2nd and 3rd years Renewal commission by 2.5%. But they could reduce the Renewal commission, under revival of orphan policies, from 5% to 2.5%.
Thus, we find that, Insurance Underwriters Association, after great efforts, only prevented greater damage than what was in the minds of the Industry leaders, the Actuary managers.
After Independence, once again a new Bill was introduced to amend the Insurance Act 1938. It was a comprehensive Bill, not only dealing with the Agency Commission Rates but also the Hereditary Renewal Commission. Once again, the Underwriters Association held meeting and addressed a letter to Shri. K.C. Neogy Commerce member, in May 1949. The Association could get the support of the President of the Provincial Congress Committee and the members of Constituent Assembly. Eventually when the select Committee was formed the Association tendered evidence before the Committee on the 18th and 19th December, 1949. After great deal of persuasion and lobbying the Association could get some benefit in the form of Hereditary Renewal Commission. On appointment of Agents and granting of license, an important section, 64(1), was incorporated in the Amended Act of 1950. This section required taking of examination of the applicant Agents, before granting of Agency licenses. This apart, another important section 31A was incorporated, prohibiting payment of any remuneration to any salaried employee of an insurer which is depended upon or related to the quantum or percentage of profit or Bonus or the premium income of the insurer. But, unfortunately these two sections could not be properly implemented as the Life Insurance Business in India was nationalized.
Nationalization of Life Insurance Business in India
In the afternoon of 19th January 1956, the President of the Indian Union promulgated the Life Insurance (Emergency Provisions) Ordinance 1956, vesting in the Government the management of both indigenous and foreign life insurance business in the country and the foreign business of Indian insurers. When the Bill was introduced in Parliament on 17th February 1956, the Union Finance Minister, Shri. C. D. Deshmukh said : “The industry was not playing the role expected of it in a modern state, and efforts of improving standards by further legislation, we felt, were unlikely to be more successful than in the past. The concept of trusteeship, which should be the cornerstone of life insurance seemed entirely lacking. Most management had no appreciation of clear distinction that should exist between trust monies and those which belong to joint-stock companies.” He also said, “Most of the field agents are dummies and their main purpose seems to be to function as channel for passing illegal rebates.”
In 1960 November, the Estimates Committee of the Parliament, under the Chairmanship of Shri. H. C. Dasappa invited the members of Underwriters Association to appear before it to give evidence. Shri. S. S. Ali along with Shri. S. P. Hazra and Shri. A. K. Purkayastha appeared before the Committee. At that time Shri. K. G. Rao, President, Life Insurance Agents Association of India, Madras, Shri. G. L. Dhingra, New Delhi, Shri. A. Subbiah, Madras, Shri. M. M. Ahuja, Delhi, also gave evidence and they could meet and know each other. Dasappa Committee also suggested for taking preventive action against Benami Agencies. The report also gave various suggestions for the improvement of the working of LIC.
Formation of Life Insurance Agent’s Federation of India.
Shri. Dev S. Mudbidri, an illustrious Agent of Bombay, (Ex-Sunlife Agent) had been trying to form an All India body ever since the nationalization of Life Insurance. He had discussion with Shri. S. S. Ali, but could not do much and Shri. Ali died in February 1963. He contacted 17 Associations known to him and many responded to his call. On 24th April, 1964, a meeting was called at Branch No. 911 of Bombay and a large number of agents representing various divisions of LIC participated in that meeting. At that meeting, an organizing Committee was formed under the Presidentship of Shri. D. S. Mudbidri, with Shri. H. V. Basudeo as General Secretary and Messrs. K. G. Rao, L. B. Kotak, S.P. Hazra, P.V. Virkar, A.K. Purkayastha, S. C. Saha, H.D. Dhingra and many others as the members of the Committee. Two different meetings of the Organising Committee were held, one in Calcutta in July and another in early September, 1964 at Bombay. An All India Convention was held on September 30th, October 1st and 2nd at C.J. Hall, Bombay. About 500 agents represented about 60 Agents Associations, attended the Convention. In that convention, the Federation was formed along with a Charter of demands. The charter of demands was submitted to LIC and the management gave reply to each one of them, mainly on the items that related to administrative matters.
The Federation Head-Quarter continued to be in Bombay for about two years from October 1964 to January 1967. During this period Federation published a monthly magazine “Insurance India”, from October 1965. But it could be continued only for about six months. “Insurance India” became informative and popular but its publication had to be stopped when the Federation Head-Quarter was shifted to Madras after the 1st General Council meeting held in January 1967 at Vijaywada.
Nevertheless, during this short period the Federation was recognized both by LIC management and the Government. So, when the Headquarters was shifted to Madras, the Federation started publishing the “Insurance India”, but could not continue after three issues were published. During the period when the Head-Quarter was at madras, the Federation received invitations for submitting memorandum and to give evidence before two important Committees instituted by the Government. They were the working group of Administrative Reforms Commission and the Morarka Committee. Federation submitted memorandums to the both the Committee and Shri. A. K. Purkayastha along with other members appeared before these Committees and give evidence.
But Madras friends also could not continue to take the responsibility of running the Federation for more than two years. When the Second General Council meeting was held at Palakol, Andhra Pradesh, the Federation’s Headquarters was shifted to Calcutta. The Headquarters of the Federation has remained in Calcutta since January 1969 to 1991
After the Head-Quarter came to Calcutta, energetic steps were taken to formulate the Agents Regulation, which was one of the items of Federation’s “Charter of Demand”, as well as one of the statutory obligations of LIC management. Like the Staff Regulations, Agents Regulations were the statutory requirement, as per LIC Act, 1956.
After a great deal of persuasions, including lobbying with the members of the Parliament and the Central Ministers, Federation could obtain the green signal to prepare their draft for consultation with LIC management for formulation of Agents Regulations.
The Federation was indeed lucky, as Shri. T.A. Pai became the Chairman of LIC. He took keen interest in the problems of Life Insurance Agents. At that time the two Managing Director of LIC, Shri. N.V. Nayudu and Shri. M.V. Sohoni also took keen interest in the matter of professionalization of 150 hours to prepare a 42 page Draft Agents Regulations, and submitted the same before the LIC management in July 1970. There was a continuous discussion for a number of times and it was the fifth Draft Agents Regulations which was ultimately passed and approved by the Government. It took almost two years to complete the entire discussion before the draft was finalized and came into force from 1st May 1972.
Many important provisions the Federation wanted to be incorporated were not approved by the management. There had been lot of changes made both with as well as without our Federation’s knowledge. By and large, it was good Regulation, first of its kind in the whole world. But, it needs a lot of Amendments. But the Federation agreed to wait for the experience to be gathered before asking for the Amendments. Now the time has come to consider amendments. But, both the management as well as the Government have remained un-responsive.
“Prejudicial to the interest of the Corporation”, the phrase was never defined. The act of Insurance Agents under above clause, whether comes under fraud? It is still to be answered by LIC of India.
What is meaning of reasonable opportunity is yet to be known to the agents. Many agents are exploited, terminated, and their renewal commissions are confiscated, because these clauses are vague and not defined. We have to take the help of legal experts and past court judgments.
Just when the agents regulation were being discussed, both the Managing Directors took keen interest in formulating the agents club rules. Shri. M.V. Sohoni took keen interest and implemented the scheme with effect from 1st April 1971. The Club Rules have been changed, without the approval of the Federation and have damaged the basic aspects of the Club movement.
Apart from what had been achieved under the agents regulation, the Federation could impress upon the Management that there should be a continuous dialogue with the Management between the agents at all level of the management. Although the Federation could hold informal Consultative Forum Meetings with the top Management, every year, since 1975, the Federation could not achieve similar forum for discussions with the management at the Zonal or Divisional level, in spite of the fact that the statutory Agents and Employees Relations Committees had been discontinued.
The Federation could not achieve much in spite of its best effort and intention, because of its Organizational and financial weaknesses. Yet, since the Federation came into being it could achieve for the policyholders some benefits in the matter of payment of interest on delayed settlement of the claims amount. It could reduce the quantum of stamp duty on the loan document which was very high and different for different states. The Federation could also achieve much better policy servicing by demanding the decentralization of all functions in the Branch Offices which to a very great extent has been implemented.
Since I have taken the reins of the Fed. as a President in Sept. 1991, with an active background due to constant company of earlier leaders the first work we took was to make Federation Financially strong and the irregular payment of Commission to make regular on fix date and full commission and further our charter of demands, giving importance to Group Insurance for Club members, increase in gratuity, paid up clause to be reduced from 5 yrs to 2 yrs. Amendments in Club rules increase in office allowance, amendments in scheme of advance and mediclaim to agents.
We had a privilege to have appeared before Malhotra Committee on 9th June 1993 and supported privatization subject to improving LIC and its services before insurance business opens to competitors.
We have appeared before Shri. Ganeshan Committee on 13th Nov. 1995 and apprised them the reasons which leads to lapsation of insurance policy and suggested remedial measured for controlling the lapsation. The results are before us. We have also given our evidence before standing committee on finance headed by Shri. Shivraj Patil as a Chairman, Shri. N. Gajapathi Rao Secretary General, Shri. Ranvir Sharma Agra, Shri. Prem Singhal Delhi, Shri. Sanjay Singh Delhi and myself, we strongly objected to allowing Banks to become corporate Agent.
We have asked a question : “The Banks who are already engaged in certain responsibilities of public services like mobilization of peoples savings, should they be given an additional responsibilities of doing insurance business also ?”
We have also discussed about section 44 and senior agency system besides writing several communications on the vital subjects. We have also appeared before standing committee on Finance headed by Shri. Murli Manohar Joshi as its Chairman on 22-01-2010. Our team was comprising of myself, Shri. N. Gajapathi Rao S.G., Shri. Prem Singhal and Shri. Awdesh Kumar both from Delhi and Shri. Ranvir Sharma from Agra. We discussed mainly on
1. Application of new mortality table and reduce management expenses.
2. IRDA should utilize Agents License fees for the development of agency profession in India.
3. We have objected omission of certain section from Insurance Act specially section 44
4. In the interest of policyholders we are committed to the overall interests of policyholders and have been making a lot of suggestions from time to time. The management must cut down its expenses in order to maintain the bonus. Sec. 40 (C) enjoins on the LIC that it should manage its expenses within 85% but it is circumvented. The surrender value should be revised and paid up clause should be reduced from 3 years to 2 years. Even Estimate Committee of Parliament as far back as in 1960-1961 had observed that surrender value on LIC policies was extremely low as compared to the SV granted by erstwhile companies. It amounted to exploitation of policyholders deliberately. Instead of thinking in terms of slashing down Agents commission, they should do something concrete by way of their welfare like increase in gratuity and pension to agents. In the name of modernization and expansion expenses should not be increased.
New History was created, the events not to forget.
I have attended Asia Pacific Life Insurance Congress at Malasiya on their invitation as a President of LIAFI. We came first time in touch with foreign organizations of 20 countries.
In 2001 LIC intended to recover service tax from the agents commission, but on our representation and intervention LIC started paying S/T on commission. This was found legal and correct.
Service Tax on Premium
With our representation alontg with Shri. N. Gajapathi Rao, Late Shri. Suresh Saraf, Shri. P. P. Singh, Shri. Ranvir Sharma and Shri. Prem Singhal to the Government and with our efforts LIC agreed to bear the S/T on risk premium.
Now the position is different they are changing S/T on total premium from 01-01-2014 which have to resist and oppose seriously.
This is one of the reason that business is coming down, as such removal of S/T on premiums will be on priority of our charter of demands.
Golden Jubilee Gift
It was denied to club members with great persuation we achieved gold coin for Club members.
I wish to brief you by telling the above history of LIAFI and also the issues which are to be taken seriously and immediately to protect the interest of policyholders and agents.
I have been on advisory board for 2005 to 2013 and was member of compensation package for insurance agents and new course Curriculum. We could bring Swaroop Committee to an end with your support.
This is all about past I could explain to you, now we have to look also for future and draw our strategy to protect the interest of agents.
1. Oppose on-line business which is violation of Insurance Act 1938
2. Direct marketing, IMF Banking channels and all alternative channels to be checked.
3. Increase in Bonus to policyholders.
4. To stop violation of policyholders protection Act. 2000
5. Implementation of citizen charter.
6. To ensure that if FDI coming it should be used for infrastructures, and catering the needs of small policyholders.
7. Men behind huge funds & figures must be given his respectful share.
8. Welfare Fund from Insurance Licence Fees to be created.
9. Agents regulation clarifying the definition of Fraud and prejudice to the interest of the corporation.
10. Prepare ourselves for more restrictions on commission as per several committee announcements.
Besides our regular demands Gratuity, premium collection charges more empowerment to empowered agents.
Ever since IRDA has increased investments cap for insurance in Feb. 2013 and increased equity exposure limit of life companies to 15% from 10% scenario has vastly changed for the industry. This move was intended to help LIC and have less impact on private players. It turned out to be as legal correction in the Act of 1938 and insurance Act of 1998.
New emerging trends have truly thrown a new challenge to agency force. IRDA suggested strict norms to prevent insurance-sector brands, money-laundering, terror-fund scrutiny which is never done so far.
The core points still remain reduction in bonus and increase in government share which was 403 Cr. In 2004 to 1049 Cr. in 2013. Whether FDI is required and whether it will be used for infrastructure or for catering the needs of policyholders is yet to be seen.
People today want an answer whether objectives of insurance set out by its founder are violated. Why citizens charter is ignored everyday? Why product designing is not given attention despite our suggestions given from time to time.
Why several NGO’s are given unnecessary patronage in the name of self-governing community level micro-insurance to provide help to community based organization to face risk coverage. More and more intermediaries are created to siphon of funds of life insurance and damage their agency structures. What will be the face of career agents CLIA, elite club members, members of global forums like MDRT’s (COT/TOT) Corporate club members, CM’s, ZM’s, DM’s and BM’s club members when their professional status will have conflicting short sighted roles.
According to a recent press report a new task force is made by financial regulations to look into various commission structures we have also decided to be in touch with them and present our view points of LIAFI.
These are my few thoughts which I want to share with you.
You are here to deliberate on each issue and also on Secretary General reports and decide what should be our line of action. With these words I throw open deliberations in the house and the secretary general report.
Before I close and say thank you to all I would like to share with you the blessing which I got from Late Shri. Purkayastha my guru who said on 17th Nov. 1995 “You are old and trusted had who has been serving the Federation under my loving care. You have earned basic insight of the problem more intimately them any others who had been serving the Federation. I have with me many memories as well as records which would reveal. What yeoman services you had rendered”
My best wishes to all
(H. M. JAIN)
To All Delegates of 15th G.C. at Silliguri on 7th Nov. 2014 to 9th Nov. 2014